SHAH ABDUL LATIF UNIVERSITY KHAIRPUR

Department of Business Administration

Subject: Business Communication

Assigned By: Madam Irum Rani

Assigned To: Waseem Ahmed Sandeelo

MBA Previous 2nd Semester

Roll No. 164

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Report On

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ACKNOWLEDGEMENT

This report has been prepared and submitted as a requirement for Business Communication Course.During the preparation of this report, I had to face several obstacles which were nevertheless removed through efforts to excel.I take this opportunity to thank our Respectable Madam Irum Rani for her ever-present guidance, support and ideas throughout the semester I dedicate this report to her.There are a number of people who have assisted and I appreciate their efforts in helping me, especially our family and friends who were extremely helpful supportive and patient through the entire process the required data and completing this report.

All the material which I included in this report is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this report but the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information.

Once again I would like to take this opportunity to thank teacher, without her guidance which I would never have been able to complete this report

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Summary

A sound and stable financial system has a direct bearing on economic growth and development of a country. The State Bank of Pakistan (SBP) being the regulator of the banking and financial system has always endeavored to ensure a sound and robust financial sector capable of efficiently catering to the needs of the public and regulated institutions. To achieve this coveted objective, SBP has to strike a right balance between its important goals i.e. to strive and support the development of a market based financial system and to have an adequate and enabling regulatory framework. Banking Policy & Regulations Department (BPRD) of SBP has been assigned the task for endeavoring to achieve the regulatory objective through incorporating required improvements in the existing regulatory environment besides responding to the need for adaptation of the international best practices for our banking industry. The Banking Policy & Regulations Department ensures a close liaison with the Banking Surveillance, Off-site Supervision & Enforcement, Banking Inspection (On-site), SME & Microfinance Departments and all other departments of SBP to ensure that policies formulated by it are being implemented in letter and spirit being the regulatory arm of SBP, the department has developed a new set of Prudential Regulations (PRs) for various sectors such as Corporate, SMEs, and Consumer Financing in consultation with Pakistan Banks Association (PBA) and other stakeholders. To facilitate the banking industry a more liberal branch licensing policy is adopted. In order to enforce the stringent standards for the corporate governance envisaged by SBP the department implements the “Fit and Proper Test” criteria for appointment of key executives in the banks. The department has been managing various schemes started by SBP along with Corporate Industrial Restructuring Corporation (CIRC) and Committee for Revival of Sick Industrial Units (CRSIU) for handling the problems of non-performing loans (NPLs) in the banking sector.

The support given by SBP in the recent years to the banking sector with regard to innovation and diversification in its activities, has also necessitated, a more composite and dynamic role of the Banking Policy & Regulations Department. The department endeavors to put in place a regulatory environment that does not make it difficult for the industry to innovate and diversify; and at the same time to ensure that their activities do not affect the soundness and stability of the banking system. The department has also been entrusted with the responsibilities to develop different schemes that are part of the developmental role of the State Bank of Pakistan.

Vision of State Bank:

To transform SBP into a modern and dynamic central bank, highly professional and

efficient, fully equipped to play a meaningful role, on sustainable basis, in the economic

and social development of Pakistan.

Mission of State Bank:

To promote monetary and financial stability and foster and financial system, so as to

achieve sustained and equitable economic growth and prosperity in Pakistan

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Table of Contents

Topics of discussion Page #

01. History of State Bank of Pakistan 0102. Banking 203. Bank assets and liabilities: 404. Governor: 505. Central Board of Directors: 606. Maintaining Price Stability and Growth: 707. Monetary Policy: 808. Conduct of Monetary and Credit Policy 909. Interest Rate Trends: 1010. Government Bonds Market: 1011. SBP Banking Services Corporation (SBP BSC) 1212. Currency Management: 13 a. Fresh Currency Notes/ Coins Issuance 14 b. Monitoring of NBP Chest Branches 14 c. CNP Implementation 14 d. Prize Bond and NSS Schemes 1513. Banking Services to the Government: 1614. Automation of Government Collections: 1615. Role of Internal Monitoring Unit: 1716. Major Achievement/Initiatives: 1817. Development Finance Support Services 1818. Internal Audit and Controls 2119. Training and Development 2220. Strengthening Payment Systems 23 a. Real Time Gross Settlement (RTGS) 24 b. e-Banking and its Composition 24 c. Real Time Online Branch (RTOB) 2421. Paper Based Banking 26

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History of Pakistan State Bank

Before independence on 14 August 1947, during British colonial regime the Reserve Bank of India was the central bank for both India and Pakistan. On 30 December 1948 the British Government's commission distributed the Reserve Bank of India's reserves between Pakistan and India -30 percent (750 Mgold) for Pakistan and 70 percent for India.The losses incurred in the transition to independence were taken from Pakistan's share (a total of 230 million). In May, 1948 Muhammad Ali Jinnah (Founder of Pakistan) took steps to establish the State Bank of Pakistan immediately. These were implemented in June 1948, and the State Bank of Pakistan commenced operation on July 1, 1948

Muhammad Ali Jinnah, the founder of Pakistan, making a speech at the opening of the

State Bank of Pakistan.

Under the State Bank of Pakistan Order 1948, the state bank of Pakistan was charged with the duty to "regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage".A large section of the state bank's duties were widened when the State Bank of Pakistan Act 1956was introduced. It required the state bank to "regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilisation of the country’s productive resources". In February 1994, the State Bank was given full autonomy, during the financial sector reforms.On January 21, 1997, this autonomy was further strengthened when the government issued three Amendment Ordinances (which were approved by the Parliament in May 1997). Those included were the State Bank of Pakistan Act, 1956, Banking Companies Ordinance, 1962 and Banks Nationalization Act, 1974. These changes gave full and

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exclusive authority to the State Bank to regulate the banking sector, to conduct an independent monetary policy and to set limit on government borrowings from the State Bank of Pakistan. The amendments to the Banks Nationalisation Act brought the end of the Pakistan Banking Council (an institution established to look after the affairs of NCBs) and allowed the jobs of the council to be appointed to the Chief Executives, Boards of the Nationalized Commercial Banks (NCBs) and Development Finance Institutions (DFIs). The State Bank having a role in their appointment and removal. The amendments also increased the autonomy and accountability of the chief executives, the Boards of Directors of banks and DFIs.

The State Bank of Pakistan also performs both traditional and developmental functions to achieve macroeconomic goals. The traditional functions may be classified into two groups:

1- The primary functions including issue of notes, regulation and supervision of the financial system, bankers’ bank, lender of the last resort, banker to Government, and conduct of monetary policy.

2- The secondary functions including the agency functions like management of public debt, management of foreign exchange, etc., and other functions like advising the government on policy matters and maintaining close relationships with international financial institutions.The non-traditional or promotional functions, performed by the State Bank include development of financial framework, institutionalization of savings and investment, provision of training facilities to bankers, and provision of credit to priority sectors. The State Bank also has been playing an active part in the process of islamisation of the banking system.

Banking:

The State Bank of Pakistan looks into a lot of different ranges of banking to deal with the

changes in economic climate and different purchasing and buying powers. Here are some

of the banking areas that the state bank looks into;

1- State Bank’s Shariah Board Approves Essentials and Model Agreements for Islamic

Modes of Financing

2- Procedure for Submitting Claims with SBP In Respect of Unclaimed Deposits

Surrendered By Banks/Dfis.

3- Banking Sector Supervision in Pakistan

4- Micro Finance

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5- Small Medium Enterprises (SMEs)

6- Minimum Capital Requirements for Banks

7- Remittance Facilities in Pakistan

8- Opening of Foreign Currency Accounts with Banks in Pakistan under new scheme.

9- Handbook of Corporate Governance

10- Guidelines on Risk Management

11- Guidelines on Commercial Paper

12- Guidelines on Securitization

13- SBP.Scheme for Agricultural Financing

Bank assets and liabilities:

This is a chart of trend of major assets and liabilities reported by scheduled commercial

banks to the State Bank of Pakistan with figures in millions of Pakistani Rupees

Year Deposits Advances Investments

2002 1,466,019 932,059 559,542

2006 2,806,645 2,189,368 799,285

Agriculture credit

Audit

Banking Inspection

Banking Policy & Regulations

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Banking Supervision

Corporate Services

Economic Analysis

Financial Monitoring Unit

Monetary Policy

Research

Statistics and Data Warehouse

Exchange Policy

Human Resource

Information Systems & Technology

Islamic Banking

Legal Services

Library

Payment System

Real Time Gross Settlement System (RTGS System)

Small and Medium Enterprises

Training and Development Department (TDD)

Treasury Operations

Strategic & Corporate Planning

Microfinance

Pakistan Remittance Initiative

Governor:

The principal officer of the SBP is the Governor. The current Governor of State Bank of Pakistan is Mr. Shahid H. Kardar.

1. Zahid Hussain, 10-06-1948 TO 19-07-1953

2. Abdul Qadir, 20-07-1953 TO 19-07-1960

3. Shujaat Ali Hasnie, 20-07-1960 TO 19-07-1967

4. Mahbubur Raschid, 20-07-1967 TO 01-07-1971

5. Shahkur Ullah Durrani, 01-07-1971 TO 22-12-1971

6. Ghulam Ishaq Khan, 22-12-1971 TO 30-11-1975

7. S. Osman Ali, 01-12-1975 TO 01-07-1978

8. A G N Kazi, 15-07-1978 TO 09-07-1986

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9. V.A. Jaffrey, 10-07-1986 TO 16-08-1988

10.I.A. Hanfi, 17-08-1988 TO 02-09-1989 (first term), 01-09-1990 TO 30-06-1993

(second term)

11.Kassim Parekh, 05-09-1989 TO 30-08-1990

12.Mohammad Yaqub, 25-07-1993 TO 25-11-1999

13.Ishrat Husain, 02-12-1999 TO 01-12-2005

14.Shamshad Akhtar, 02-01-2006 TO 01-01-2009

15.Syed Salim Raza, 01-01-2009 TO 02-06-2010

16.Yasin Anwer(acting), 02-06-2010 TO 08-09-2010

17.Shahid H. Kardar, 08-09-2010 TO present.

Central Board of Directors:

1. kamran laghari Kardar, Chairman

2. The Secretary Finance Member (Presently Mr. Salman Siddique)

3. Mr. Kamrani Y. Mirza Member

4. Mr. Zaffar A. Khan Member

5. Mr. Tariq Sayeed Saigol Member (retired, position presently vacant)

6. Mirza Qamar Beg Member

7. Mr. Asad Umar Member

8. Mr. Waqar A. Malik Member

9. Mr. nwab srajudolla

Maintaining Price Stability and Growth:

After having a challenging year in terms of achieving price stability, 2010 was the year of recovery in growth and ease in inflationary pressures for the country. This coupled with improvements in external sector indicators and exchange rate stability helped SBP to ease its monetary policy stance during the year with a 150 basis points cut in the discount rate. The first cut came in August 2009 when the discount rate was reduced from 14 percent to 13 percent. Then in November 2009, it was further slashed by 50 basis points. However, in subsequent months of the fiscal year, SBP adopted a cautious approach by keeping the discount rate unchanged at 12½ percent keeping in view the resurgence in inflationary pressures and uncertainties in fiscal and quasi fiscal indicators.

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For the efficiency of monetary policy formulation, SBP increased the frequency of releasing monetary policy statements to six times in a year. Four of these are only briefs on monetary policy decisions issued as press releases while two are detailed accounts of prevailing economic conditions and policy decisions announced in press conferences. Another step for strengthening the effectiveness of monetary policy was the introduction of interest rate corridor in August 2009 that helped in anchoring the short term interest rates and improving liquidity management in the money market. To develop and strengthen bond market in the country, an Electronic Bond Trading Platform (EBND) was launched in January 2010 through Bloomberg. The key features of this platform aredissemination of real time information to investors, ability for price makers to trade on firm and anonymous orders, straight through processing interface with local settlement systems, etc.

During the year, SBP expanded its analytical and research activities to micro level information of the economy to improve its understanding of economic dynamics. A primary survey was launched to study the price setting behavior of economic agents. Contacts were established with different industrial and trading units to get firsthand knowledge of their activities and issues. And field trips were made to study economics of agriculture sub-sectors.

Monetary Policy:

To enhance the efficacy of monetary policy, the central bank decided in September 2009 to increase the frequency of monetary policy decisions to six times in a fiscal year. Hence, it was decided that monetary policy decisions would be announced in the last week of July, September, November, January, March, and May. It was also decided that the January and July decisions would be accompanied by a detailed statement and press conference, whereas the rest of the monetary policy decisions would be announced through a press release only. Hence in FY10, SBP issued four brief monetary policy decisions and two monetary policy statements. The monetary policy stance went through several stages during the year, from easing in the first half, to maintaining status quo in the second half. Striking a balance between improvements in various macroeconomic indicators and ongoing economic challenges, SBP eased the policy discount rate as well in FY10.

The first move towards easing the stance was in consideration of the improvements inMacroeconomic indicators. And the central bank decided to lower the policy rate by 100 bps w.e.f. August 17, 2009, as detailed in the monetary policy statement for July-September 2009. At that point in time, CPI inflation showed a declining trend, government borrowing remained within the quarterly limits specified in the IMF SBA, and SBP‟s foreign exchange reserves exhibited a rising trend. The positive indicators, in turn, were reflected in a contraction in aggregate demand; much needed fiscal consolidation, and improved balance of payments position. However fiscal and real sector performance remained tenuous during the year. Lending to the private sector

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remained subdued and structural issues specifically electricity shortages diluted the optimism of a steady recovery. Sustainable recovery of the real sector of the economywas not possible without a revival of the business environment and availability of credit to the private sector. Structural weaknesses in the economy continued to pose a threat to inflation in the presence of uncertainty regarding outcome of ongoing fiscal consolidation and timing of official foreign inflows. This led to keeping the policy rate of the central bank unchanged in the MPS announced at the end of September 2009.

Although the cumulative flow of credit to the private sector showed retirement during the initial months of FY10, it witnessed significant improvements in the second quarter. This was in consonance with the growth in Large Scale Manufacturing (LSM). Throughout this period, the central bank strived to maintain monetary stability without jeopardizing real economic activity. In this perspective, SBP decided to lower the policy discount rate by 50 bps in November 2009. However, inflation outlook in January 2010 turned vulnerable due to delays in fiscal consolidation and re-emerging international commodity price pressures. After careful evaluation of associated uncertainties in the economy, policy rate was kept unchanged at 12.5 percent. In the subsequent months, inflation showed some persistence due to increases in electricity tariffs, adjustments in the prices of domestic petroleum products, and administered prices of commodities. In addition to this, uncertainties pertaining to fiscal and quasi-fiscal indicators (in terms of government meeting its tax mobilization targets), the central bank maintained the policy discount rate at this level in the MPS for March and May 2010.

Conduct of Monetary and Credit Policy

1. Open Market Operations (OMOs)

The main thrust of liquidity management by SBP is to maintain stability in the short term interest rate environment, and to bring greater transparency in the implementation of monetary policy. To achieve these objectives, SBP introduced an Interest Rate Corridor for the money market overnight repo rates effective from August 17, 2009. The corridor is operated through standing overnight repo / reverse-repo facilities (i.e., floor & ceiling), setting a formal corridor for the money market overnight repo rates consistent with the monetary policy stance of State Bank of Pakistan. As a result, volatility in the interbank overnight money market repo rate came down substantially during FY10.

SBP liquidity management mainly focused on the shorter end of the yield curve. OMOsremained the primary tool for monetary management. Liquidity situation mostlyremained under stress during FY10 because of governments continued reliance ondomestic banking sector for financing its budget deficit as there were less thanexpected inflows on account of foreign economic assistance as well as a shortfall inthe revenue collection.

Consistent with monetary policy stance, the weighted average O/N rate inched up to11.74 percent during FY10 compared with 10.75 percent in FY09. The increase in therate was accompanied by a considerable reduction in the volatility of weighted

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average O/N rates, which is attributable primarily to the introduction of interest ratecorridor.

2. Interest Rate Corridor Activities

To manage their liquidity position, banks frequently approached SBP for standing O/N repo and reverse repo facilities during the year. Banks placed Rs 869.1 billion using repo (deposit) and availed Rs 807.3 billion using reverse repo (borrowing) during the year. Most of the placements took place during Q4-FY10 indicating easing of the market liquidity conditions, due to inflows from government on account of PEPCO, Pakistan Steel, PSO, FX, and other government accounts due to year-end payments by the government.

3. Statutory Liquidity Requirement (SLR) and Cash Reserve Requirement (CRR)

SLR and CRR requirements for banks remained unchanged during FY10 as SBP had to ensure sufficient availability of liquidity in the system for smooth sailing of the Financial Sector. Banks heavy investment in government securities – a safe haven – resulted in holding of excess reserves to the tune of Rs 773 billion (which is 36.0 percent of TDL against the total mandatory CRR and SLR ratio of 24.0 percent) at the end of FY10.

Interest Rate Trends:

In its endeavor to tackle double-digit inflation, SBP continued to follow a tight monetarypolicy stance during FY10. A relatively higher discount rate helped bring down the inflation numbers, even reaching a low of 8.9 percent in October 2009. Encouraged by a declining inflation rate trend, SBP cut the discount rate by 100 bps and 50 bps in August 2009 and November 2009 respectively to facilitate the economic recovery process. However, with the rebound of inflation afterward, SBP followed a cautious approach and the policy rate was kept on hold to preserve the much needed economic recovery.System's liquidity remained tight for most of the year, mainly due to government borrowings and relatively higher demand from private sector resulting in upward trend of key interest rates. Consequently the yield curve also shifted upward (See Figure 1.4). As a result of tight liquidity conditions, the benchmark 6-month KIBOR hovered aroundSBP reverse repo rate (ceiling). A similar trend was also seen in the 6-month PKRV yield

Government Bonds Market:

1. Pakistan Investment BondsGovernment raised a net amount of Rs 64.31 billion through PIB auctions against the target of Rs 60 billion during FY10. This was done mainly by reopening the previous issues throughout the year. Investors seemed to be most interested in 10 year PIBs, as about 60 percent of the money was raised through this tenor. As a result of these

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borrowings, the outstanding balance of the PIBs has increased to Rs 505.29 billion at the end of FY10 compared to Rs 440.99 billion at the end of FY09.

2. Market Treasury BillsThe government raised a net amount of Rs 467 billion (face value) through MTBs in FY10 compared to net Rs 304 billion in the same period last year. A total of 25 auctions were held by SBP during the year in which the primary dealers offered an accumulative amount of Rs 3.2 Trillion against the target amount of Rs 1.36 Trillion. In an effort to broaden the investor base, SBP allowed non-competitive bids in June 2009 - a process that allows individuals, small investors and non-banks to invest directly in MTBs. A total amount of Rs 20 billion (face value) was raised through non-competitive bids during FY10. Mutual funds remained the most active non-bank investors in the MTBs capturing 63 percent share in total amount raised through noncompetitive bids. SBP is also working in collaboration with NIFT to develop a web portal where retail investors will be able to place noncompetitive bids directly in each auction.

3. Government Ijara SukukIssuance of GoP Ijarah Sukuk which had been a longstanding need of Islamic bankingindustry has also served as a new source of funds for GoP. During FY10 governmentconducted only one Sukuk auction of 3 year tenor amounting to Rs 15.32 billion (seeTable 1.4). A total of four tranches of GoP Ijara Sukuk had been issued since its introduction in 2008 amounting to Rs 42.24 billion.

4. E-Bond: Electronic Bond Trading PlatformAs a major step in the development of fixed income markets in Pakistan, an electronic fixedincome trading platform provided by Bloomberg called EBND was launched on January 11, 2010. The platform is currently being used for trading of government securities only; however, it has the capacity to support trading of corporate debt instruments as well. EBND which is already in use in 18 countries has the following key features:

a. A central display provides the best live quotes by price makers of all outstanding issues.b. Dissemination of real time information to investors on transactions in fixed incomemarket.c. Price takers can approach multiple price makers for firm quotes.d. Choice for price makers to enter and trade on firm, anonymous orders.e. Facilitate for users to customize their counterparty credit database.f. Option to manually input any bilateral deal which is not concluded on Bloombergthrough a “Voice Trade Capture” feature.g. Although this is a front-end system, “straight through processing” interface is possiblewith local settlement systems and banks‟ internal systems as it is based on FIX protocol.

The introduction of this platform is expected to provide not only a boost to fixed income market, it also has a lot for all market participants. The availability of real-time

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information about yields and turnover will help the issuer in determining demand for its paper and make better funding decisions. Moreover, the platform is likely to attract more investors to the market as the price discovery process becomes much easier resulting into enhanced liquidity and lower liquidity premium. This will also result in further development of liquid yield curves for various market segments. With the availability of a widened investor base, banks would be able to shift government debt from their books freeing up funds for private sector credit.

SBP Banking Services Corporation (SBP BSC)

The Banking Services Corporation (BSC), being an operational arm of SBP, continued to further improve its service delivery mechanism in an automated environment. During FY10, the SBP-BSC undertook various initiatives to better discharge its core responsibilities assigned in the SBPBSC Ordinance 2001. The Bank aggressively pursued a talent management strategy with focused approach on recruitment and selection. The process started with the induction of 24 cash officers for the field offices of Muzaffarabad and D.I. Khan to meet their specific needs. The Bank’s Board also approved a management trainee scheme (OG-2) titled ‘Young Professionals Induction Program’ (YPIP) to induct young officers on regular basis. Further, realizing the need for supportive and capable middle management to steer the reform process, the Bank advertised OG-3 level positions. To improve the skill sets of existing staff, training opportunities were provided. Also the use of IT and Globus in BSC has improved timing in service delivery. For ensuring effective internal controls in an automated environment, risk register, system based check lists have been introduced in some areas. The remaining areas of operations risk registers are developed on a fast track basis.Besides its core responsibilities, BSC with its enhanced mandate in line with the new vision for its 16 field offices played a significant role to make them focal points for dissemination and implementation of SBP policies/initiatives. As a result, during FY10 this not only helped to improve financial awareness but also resulted in healthy feedback from stakeholders.During FY10, a number of projects were completed to improve physical infrastructure including renovation and refurbishing of various floors of BSC head office and its field offices to uplift the face of State Bank of Pakistan and to provide efficient services in a better working environment.

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Currency Management:

Currency Management Department at BSC continued to ensure smooth distribution of banknotes and coins throughout the country, retrieve unfit notes from circulation, review/rationalize the systems/procedures at the field offices and disseminate information about currency related matters to the general public. CMD issued and amended certain instructions complementing the fully automated systems and to pace up with ever demanding changed scenario. The modified instructions were related to the areas covering:

a) Distribution and issuance of fresh notes on the occasions of Eids; b) Master circular on cash management and on-site examination of bank`s compliance to the clean note policy; c) Submission of compliance certificate to CMD by the banks on Clean Note Policy; d) NBP Chest Examination; e) review of sorting charges. The CMD also provided BSC`s recommendations to Finance Department SBP, for amendments in agency agreement with NBP, to strengthen the Chest operations.CMD remained proactively involved in payment of relief amounts to the IDPs (Internally Displaced Persons) in Swat, Bajaur, and Wazirstan Agency of KP/ FATA through Peshawar / D.I.Khan field offices and in collaboration with Banking Policy & Regulations Department, SBP, United Bank Limited and M/s NADRA. CMD also participated in the quarterly meeting of monitoring cell of task force for combating the counterfeiting of currency notes. CMD also successfully managed distribution of a commemorative coin of Rs10 issued on October1, 2009 to express solidarity and unity with the Peoples Republic of China on its 60th anniversary. A new Rs 500 Banknote with an Optical Variable Ink (OVI) was also issued on January 25, 2010 through field offices. The introduction of OVI feature in Rs 500 banknote distinguishes it from the new design banknote of the same denomination launched in November 2006. The existing Rs 500 banknotes will, however, continue to remain legal tender.

To automate cash operations at field offices, efforts were made to equip them with the latest cash handling machines such as, coin / note counting machines, loose note counting machines, tri-color stamping machines, note / packet banding machines, bundle banding machines, shrink wrapping machines, note shredding machines, hole punching machines, and triangular cut machines. During FY10, an amount of Rs 12.349 million was incurred for purchase of above those cash machines. With a view to optimize the utility of currency Globus system, different reports have been developed for providing swift information to the Management for making timely decisions. To create awareness about the security features of the currency notes, CMD arranged 166 special outreach programs throughout the country for general public, cashiers of commercial banks, and other stakeholders during 2009-10. To enhance the operational knowledge of the employees of SBPBSC regarding currency management and operations, foundation level and intermediate level trainings were imparted to 55 and 24 employees respectively during FY 10. Advanced trainings for detection of counterfeiting were also arranged at Forensic Laboratory of Pakistan Security Printing Corporation (PSPC) for 49 officials of SBP/BSC and Police Department.

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Apart from the above initiatives, the following tasks supplementing the core responsibilities of Currency Management Department were also accomplished during the year:

1- Fresh Currency Notes/ Coins IssuanceTo facilitate general public and other stakeholders in obtaining fresh currency notes on the eve of Eid ul Fitr, the department continued its well‐ defined policy for issuance of new currency notes, from more than 9200 branches of commercial banks in addition to 16 field offices of BSC. As per arrangements, one packet each of Rs 5/‐ and Rs 10/‐ denomination notes were provided from the counters of SBP BSC and commercial banks against presentation of original CNIC and its Photostat copy. Commercial banks were also allowed to issue up to a maximum of five packets each of Rs.5 and Rs10 denomination fresh notes to their corporate clients on receipt of request on company’s letter head duly signed by an authorized representative.Around 1,821 million pieces of fresh banknotes valuing Rs 316 billion were issued to general public, banks, different government departments and other stakeholders during FY10, as against 1,656 million pieces valuing Rs 306 billion issued during the last year. Denomination wise breakup of fresh currency notes issued during FY10 and FY09 is placed at Table 9.1. Likewise a total of 270.7 million coins of Rs1, Rs 2 and Rs 5 valuing Rs 589.2 million were issued during 2009-10 as against 228.5 million coins valuing Rs 523.3 million issued during the last year.To ensure provision of fresh banknotes to general public through commercial banks’ branches, various measures were put in place by the CMD, HOK, which included the on-spot verification of various branches of commercial banks, mystery shopping of fresh notes from the market. Banks involved in violating the SBP instructions were penalized and fines have been recovered on delinquent banks/branches.

2- Monitoring of NBP Chest BranchesState Bank of Pakistan has an agency agreement with National Bank of Pakistan for carrying out the treasury functions through its 225 branches designated as Chests / Sub-Chest. Besides usual banking functions, the NBP Chest/ Sub-Chest branches maintains government accounts and also provide exchange/ remittance facilities. Under the said agreement, State Bank has agreed to place with the Chest/Sub-Chest branches of the National Bank, a specific amount of cash resources to facilitate the chest operations. Besides CMD, four issue circles are regulating and monitoring the activities of these Chests / Sub-Chest on daily basis. To check and verify the balances placed at these Chests/ Sub-Chests, as also to ensure the existence of strict internal controls, the existing instructions and procedures relating to examination of NBP Chest / Sub-Chest branches has been reviewed and instructions have been issued to field offices of BSC to conduct examination of Chests / Sub-Chest of NBP in the area of their jurisdiction, on annual basis.

3- CNP ImplementationBSC has been vigorously providing support and undertaking allied activities for reinforcing the Clean Note Policy (CNP) of State Bank of Pakistan. To achieve greater

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efficiency and transparency in cash monitoring of branches of commercial banks, as also to overcome the problems confronting the general public with regards to the circulation of soiled notes in the market, previous instructions of on-site examination of commercial banks have been revisited in totality. In this regard, master circular has been issued to all field offices containing methodologies, enhanced coverage, and annexure for recording irregularities committed by banks. Five thousand four hundred eighty four branches of commercial banks were examined by cash monitoring teams of field offices during FY10 compared to 5,670 branches last year. Consequently, an amount of Rs 8.427 million has been recovered during FY10 on account of violations of various instructions of CNP as against fine of Rs 3.885 million last year.

4- Prize Bond and NSS SchemesBSC has been playing an important role in mobilizing savings for the government through sale, encashment, prize money payment, holding draws of National Prize Bonds, etc. Besides Prize Bonds Scheme, BSC also manages the sale, encashment and profit payment of Special Savings & Defense Savings Certificates Schemes of the government on behalf of Central Directorate of National Savings (CDNS) under an agency arrangement with the federal government.During the year under review, the aggregate sale and encashment of National Prize Bonds was Rs129.48 billion and Rs 90.92 billion compared to Rs 105.89 billion and Rs 91.24 billion respectively in FY09. The total value of the prize bonds held by the investors as on June 30, 2010 was Rs 235.14 billion compared to Rs196.58 billion as on June 30, 2009 showing an increase of 19.61 percent. During FY 10, the field offices of BSC settled 1,065,144 cases of prize money and paid prizes of Rs18.79 billion compared to 979,413 cases involving prize money of Rs14.01 billion processed in FY 09.A total of 120,244 cases relating to sale, encashment, and profit payment of Special Savings Certificates and Defense Savings Certificates were handled by BSC field offices during FY10.Further, the following modifications/improvements were also made in consultation with CDNS to improve the management of National Saving Schemes at all field offices of SBPBSC during the year:

1- To enhance the coverage and to provide improved and timely services to the general public, seven more scheduled banks namely; M/s Habib Metropolitan Bank Limited, Arif Habib Bank Limited, Bank of Tokyo-Mitsubishi UFJ Ltd., Standard Chartered Bank (Pakistan) Limited, JS Bank Limited, HSBC Bank Middle East Limited and Barclays Bank PLC, Pakistan have been authorized during the year under review to deal with the National Savings instruments, i.e., Defense Savings Certificates and Special Saving Certificates through their branch network in Pakistan.

2- For convenience and security of the general public, 10 field offices of SBPBSC have been shortlisted for holding draws of prize bonds of different denominations.

3- To make the draw process more transparent, the draw ceremonies of National Prize Bonds are now covered through video recording.

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Banking Services to the Government:

SBP BSC as a banker to the government is extending banking services through its 16 field offices to the federal, provincial, local governments, and general public across the country, which includes revenue collection and payments on behalf of government departments. Further, to strengthen the banking services, agency agreement has also been signed (by Finance Department SBP) with National Bank of Pakistan (NBP) to work as an agent to facilitate government departments using a wide network of 1,243 NBP branches. Under the agreement, the NBP provides facilities on behalf of SBP BSC to withdraw/ deposit cash and other allied banking transactions pertaining to government collections and payments. The consolidation and reporting of federal, provincial, and district governments’ accounts and maintenance of Zakat account, its collection, disbursement, consolidation, and reporting to concerned quarters is one of the main responsibilities/ core functions of BSC Accounts Department. Data pertaining to government transactions is reported to stakeholders including Accountant General of Provinces, Accountant General Pakistan Revenue, Pakistan Railways and other concerned departments on regular basis. The daily position of government balances is also provided to the Finance Department for onward submission to the stakeholders. During the year, daily cash position and balances were also reported through email to some stakeholders.During FY 10 around 5.77 million transactions pertaining to government receipts/payments were handled by BSC offices compared to 6.036 million transactions in the preceding year. During the year under review around Rs 4.82 billion Zakat was collected compared to Rs 5.54 billion last year.The tax revenue collected by SBP BSC offices and the network of NBP branches on behalf of the government and credited to the relevant accounts during the year was around Rs 1,364 billion compared to Rs 1,200 billion last year. The same was reported to FBR electronically on daily basis.

Automation of Government Collections:In past, Federal taxes were used to be collected by SBP and NBP through the manual submission challans by the stakeholders at the counters of SBP BSC and NBP. In 2005, Federal Board of Revenue with the help of Sate Bank of Pakistan and National Bank of Pakistan launched collection Automation Project (CAP) which is now operational in all branches of SBPBSC and selected branches of NBP for collection of Federal Taxes whereby Computerized Payment Receipts (CPR) are issued.In continuation of automation of revenue collection, SBP and BSC are collectively working with FBR for web based tax collection EPARS (Electronic Payment and Refund System) and CAP II (collection Automation Project II). After implementation of these revised systems, tax payers will be able to pay taxes using a web system known as ‘Tax payers Facilitation System’. Through EPARS transfer of funds can also be made directly through their accounts with the commercial banks and will be transferred to SBP through RTGS (Real Time Gross Settlement). Initially the system will take care of Federal taxes. After successful implementation of this system, it can be extended for collection of other taxes.

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For successful implementation of EPARS, a series of meetings and discussion were held during FY10 between FBR and SBP and other stakeholders, wherein different modalities/ regulations of the system were discussed, designed, and finalized. SBP and SBPBSC are providing every possible support to FBR to make this task of national importance a success. All the tasks assigned to SBP and SBP BSC was completed timely. It is expected that EPARS would be successfully launched very soon.

Role of Internal Monitoring Unit:The IMU of the department plays its role in cases where genuineness and clarity ofdocuments are of vital importance. On collective basis, this unit checked around 3,000 cases during the year. To bring uniformity and transparency on a country wide basis, Internal Monitoring Unit of FEOD has prepared detailed working procedure and check lists with the active participation of all the units which have been provided to all the field offices concerned

Major Achievement/Initiatives:

1- A penalty of Rs 2, 568,057 recovered from foreign currency deposit receipts (FDRs) kept in the name of the accused.

2- The performance bar has further been raised by arranging repatriation of US$1,318,022 in 16 cases and commitment to settle balance of US$600,000 in 6 cases as soon as possible.

3- Towards cost saving, the department started publishing consolidated Show Cause Notice in respect of more than one accused.

4- Due to continuous persuasion, one of the authorized dealers agreed to issue NOC in respect of 72 cases out of 202 involving US$ 8,581,172 lying indecisive since 2002.

5- A new position titled ‘Administrative Office’ (Courts) was created at HOK to ensure that all the pre-adjudication formalities have been fulfilled by the complainant and that complaint is complete in all respect.

6- Repatriation of 29.2 million US$ being the highest since the inception of FEAD has been achieved during FY10.

Development Finance Support Services;

Improving financial outreach was the stimulating force behind the establishment of Development Finance Support Department (DFSD) and its units in SBP-BSC. The aim is to supplement efforts of Development Finance Group of SBP concerning financial inclusion by capitalizing on the field presence of the SBP BSC in 15 cities across Pakistan.

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FY10 was another successful year for DFSD to promote SBP’s strategy of augmenting financial deepening. The efforts during this year not only helped to improve financial awareness but also enhanced the feedback from stakeholders. The 13 field units across Pakistan helped in dissemination of SBP’s policies besides obtaining feedback on vital regional and sectoral issues. In this regard, the Focus groups meetings for SME, agriculture and Micro finance sectors remained vital in highlighting demand and supply side issues. A total of 65 Focus Group meetings were arranged during FY10, from which 26 were on Agri-finance, 22 on SME, 13 on Micro finance and remaining on miscellaneous issues. This year, the number of total meetings has shrunk due to increase of time span, from quarterly to biannually, to provide sufficient time to resolve the stakeholders’ issues and to suggest appropriate amendments in SBP’s policies to concerned departments. In FY10, DFSUs organized around 271 events/meetings with objective to support the vision of DFGSBP. The arrangement of 48 awareness programs in various regions was to attain this objective. Moreover, 8 Agri, SME & Microfinance fairs/exhibitions were also organized with joint efforts from commercial banks and local chambers, traders, and farmer associations. These fairs have enhanced the understanding of SBP’s policies and commercial banks’ financial services among local people. Moreover, the fairs also provided a platform to local chamber/farmer representatives and bankers to build better relations and understanding which may help in resolving issues.The deficiency of trained and competent human resource in many commercial banks is a major supply side issue which hinders the pace of financial growth. The unfamiliarity of staff with key Agri/SME issues and with SBP’s initiatives may hamper the interest of stakeholder in utilizing bank financing.In addition, it is one of the main reasons of banks’ reluctance to participate in Agri/SME lending. Even though, the number of agriculture and SME customers using formal modes of financing is increasing; however, a large segment of our population is still relying on informal credit channels.The DFSD has commenced the capacity building training programs for commercial bankers’ to equip them with better understanding of main issues. During the year under review, 20 capacity building trainings were organized by DFSUs. Moreover, DFSD has entered into phase-III of pilot project of one window operation on Agri-financing with coordination of Agriculture Credit Department.Furthermore, to create close association with educational/vocational institutes, the Development Finance Units staff and Chief Managers made 51 visits/meetings this year. These efforts would help to broaden the vision and understanding of students/faculty members regarding dimensions of finance world and also to enhance their interest in local economies. As a result, many DFSUs like Lahore, Faisalabad, Multan, Sukkur, and Gujranwala are successfully conducting studies/surveys with active participation from academia. The Cotton belt study, prepared by DF Multan unit with the assistance of students from Bahauddin Zakariya University, was an effort to explore the rural cotton economy and to encourage banks to increase their exposure in agriculture financing. The study was based on the survey conducted in Pakistan’s top ten cotton producing districts with the aim to highlight the problems prevailing in cotton sector along with to enhance the financing facilities for farmers. In addition, the young students have also been given an opportunity to participate in internship programs arranged by several DF units.

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The chief economic adviser and his team’s visits to various DF units and meetings with stakeholders was another highlight of this year. Their keen interest in grass root issues prevailing at local/regional level has encouraged the DF staff to pace up their efforts of discovering regional economies. Likewise, the concept of DFSD regarding formulation of ‘Regional Profiles’ is to indicate the existing obstacles of local/regional markets as well as to explore the export potential. A number of regional profiles are in process according to the guidelines provided by DFSD-Karachi.

Moreover, to achieve the goal of poverty alleviation and growth of financial sector, DFSD also coordinates with district/provincial government departments. The close linkages of DFSUs with provincial agriculture, livestock, and revenue departments help to highlight the stakeholders’ problems in front of concerned authorities. In this regard, various meetings/seminars were organized in which government officials were also invited.During FY10, Central EFS Verification Division has been merged in Development Finance Support Department; earlier it was a part of Strategic Planning Division, SBP BSC HOK. The main purpose of this Division is to maintain uniformity in the process of on-site verification of Export Refinance cases across BSC field offices, provide necessary guidance to the verification teams at BSC offices, and to prepare consolidated reports on each commercial bank on the basis of findings of the verification teams for onward submission to the SME finance Department, SBP. During the period under review, 42 consolidated on-site verification reports of different banks have been prepared and sent to SME Finance Department, SBP for necessary action. During the verification process, 46,964 loan cases granted to commercial banks by the BSC offices were reviewed and fine amounting to Rs 46.1 million has been recovered from the exporters and banks on the advice of verification team on account of non compliance to various instructions of the SBP on EFS. Going forward, DFSUs have proposed to arrange various awareness programs/ meetings/ seminars in upcoming year. The conceptualization of introducing ‘Shariah compliant’ financing modes at micro level is in process. In this regard, the idea to establish an ‘Islamic focus group’ is also in pipe line. The campaign of improving financial literacy among common people is also being developed. Various industrial cluster studies by DFSUs, with association of academia, are under way. The Lahore office is conducting auto parts cluster study to highlight the issues/potential of industries of auto parts and agricultural machinery. The work on power loom cluster study along with another research on exploring Citrus export potential is also in process in DF Faisalabad. The Quetta and Gujranwala offices are contributing their efforts by exploring live stock potential in Baluchistan and fisheries sector in the latter respectively. In FY10, DFSD has published a survey report highlighting socio economic conditions of Gujranwala region. In future, the Lahore office would also prepare a survey on the same lines.

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Internal Audit and Controls:

In SBP BSC, prime objective of IAD is to examine and evaluate whether the Bank’s framework of risk management, internal control, and corporate governance processes is adequate and functioning properly. Audit exercise spans over the whole year and Annual Audit Plan of Internal Audit Department describes audit goals and schedule of audit of SBP BSC offices and departments. The Committee of the Board of SBP BSC on Audit formally approves the audit plan. Audit reports along with the executive summary of audit observations comprising high/medium risk observations detected during the audit of an office or department are submitted to the Managing Director SBP BSC for review. Concurrently, the same is forwarded to the Executive Director, Internal Audit & Compliance Department, SBP, for perusal and onward submission to the Governor, State Bank of Pakistan. During the year under review audit reports of 16 SBP BSC and 3 department of HOK were issued.Internal Audit Department has completed its re-structuring process and Internal Audit Units at the level of SBP BSC Field Offices were transformed into Audit Hubs at Karachi and Lahore with the aim to improve monitoring, expanding efficacy of internal controls and timeliness of reporting to senior management. Both the Audit Hubs are now fully functional and carrying out periodical audit of SBP BSC offices as per their monthly audit program. During 2009-10, 46 audits of various BSC offices/ departments were conducted by the teams of audit hubs.

To strengthen the enforcement and compliance functions, a compliance officer has been assigned to each audit team, who ensures compliance of the audit reports and timely resolution of issues highlighted in executive summary of audit observations. Compliance reports received from the offices and departments are being processed in IAD and are submitted to the Managing Director of SBP BSC. The Committee of the Board of SBP BSC on Audit is a key institution in the context of corporate governance. Three Audit Committee meetings were held during the year to review the internal audit reports, findings incorporated and recommendations including the detection of acts of fraud and irregularities of material nature. The committee provides guidance and gives instructions for implementations besides continuously monitoring the performance of Internal Audit Department. To meet the technological challenges as well as for skill development and enhancement of its staff, Internal Audit Department has procured Audit Command Language (ACL) software, which would enable Internal Audit Department to carry out audit of system data available on GLOBUS and ERP Oracle. Appropriate training of audit officials was also arranged from foreign trainer on TOT basis.Further, an officer of Internal Audit Department was also sent to Slovenia for training on Central Bank Internal Audit module.

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Training and Development:

The Training & Development Department (T&DD) has been making efforts to steer the ‘capacity building’ initiatives within SBP BSC through different types of interventions. Due to aggressively pursued training schedule, a total of 1997 officers were trained during FY10 in both function specific and soft skill modules compared to 1,817 in FY09.The structured training efforts initiated in FY08 in pursuit of building efficient teams continued with the same fervor in its third year. Apart from extending function specific and soft skill trainings to existing employee with higher number of participants than last year, a pre-induction training program was also held for a group of cash officers recruited for D.I. Khan and Muzzaffarabad offices. The development of course curriculum for 12-weeks training program for the participants of Young Professional Induction Program (YPIP) was also a landmark of the T& DD during this year. Moreover, holding of management training program for the line managers (Chief Managers) and start of Dedicated English Writing Skill (DEWS) program were also achievements during the year.Another important development during FY10 has been the opening up of foreign trainingOpportunities to SBP BSC officers. With our prime focus on bringing about a paradigm shift in the behavior/ attitude of officers and to improve their skill set to build SBP BSC a dynamic and vibrant organization ready to face future challenges, a team of well reputed trainers from within BSC, SBP and different training institutions having a good repute across Pakistan were engaged.To foster its role and come to the expectation of BSC stakeholders as embedded in its mission and vision statements, exclusive programs for counter staff and their supervisors were initiated to instill among them the art of providing friendly customer services.Taking into account higher average age of the SBP BSC employees and gap in job related skills, nontraditional training solutions were also introduced besides increasing the coverage and scope of the existing training programs.During FY10, SBP BSC also offered summer internship program to about 155 students of MBA, MPA, Economics discipline, etc. from accredited universities/ institution across Pakistan.

etc.) due to diverse location of 16 field offices. The satellite training initiative introduced last year with the active support of NIBAF (wherein trainer designated by NIBAF travelled to selected field offices to conduct the training sessions) proved highly successful in expanding the coverage especially of soft-skill programs in a more cost effective manner. We therefore plan to improve upon the modalities of satellite training and continue conducting nearly all soft-skills training programs through this mode.

BSC has been making efforts to equip its Lahore and Islamabad offices with video conference facilities. We also intend to utilize these facilities as and when available to deliver training programs next year with cost efficiency.

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Strengthening Payment Systems

Safe and efficient Payment Systems are critical to the effective functioning of financial systems in a country. Payment Systems are the procedures, instruments, and channels by which funds are transferred and settled between financial institutions. It comprises both retail and wholesale payment systems. The retail payment systems, inter alia, include Alternate Delivery Channels1 (ADCs) which facilitate and process e-Banking transactions in a country. Wholesale payment systems are systemically important (such as Real Time Gross Settlement Systems), and process high-value low-volume transactions. Payment Systems Department (PSD) at the State Bank of Pakistan (SBP) has taken various steps and instituted policy measures for efficient working and security of Payment Systems in the country. Electronic banking in Pakistan has shown tremendous growth over the last decade. And it has achieved greater efficiency and won customer satisfaction because of high reliance on advanced technologies and integration of systems at regional and global levels. PSD has taken various measures issuing instructions and guidelines to effectively regulate, oversee, and safeguard ADCs. One such measure is the EMV2 compliance. In December 2008, all Point of Sale (POS) terminals, which process Debit/Credit card transactions in the country, were successfully migrated to EMV standard. Banks have also been advised to replace magnetic stripe based cards with smart or Chip-based Cards by the end of 2010. The Plastic Cards embedded with Chips containing sensitive consumer information provide high level of security.During FY10, Federal Board of Revenue (FBR) under the Tax Administration Reform Program (TARP) embarked upon a project titled Electronic Payment and Refund System (EPARS). And the Payment Systems Department has been facilitating various stakeholders within SBP, Commercial banks, and FBR on this project in designing the payment and settlement modalities (by using RTGS) for the project, defining dispute resolution mechanism, and ensuring data integrity and security, etc.To promote the use of banking channels for inward foreign home remittances to respective beneficiary accounts anywhere in Pakistan, Payment Systems Department, in collaboration with Exchange Policy Department, has introduced a Payment Systems Architecture during FY10 for a project called Pakistan Remittance Initiative (PRI) jointly undertaken by State Bank of Pakistan, Ministry of Finance, and Ministry of Overseas Pakistanis. The objectives were to credit the beneficiaries’ accounts on the same day, using RTGS platform for inter-bank settlement, bring efficiency and transparency in the remittance system and boost foreign exchange reserves in the country. The initiative has started to materialize and highest-ever remittances amounting to USD 8.906 billion were received in FY 10 showing an increase of 14 percent over the previous year.

1. Real Time Gross Settlement (RTGS)RTGS is a payment mechanism that settles inter-bank and time critical payments in real time, item by item across the participants’ current accounts held with the central bank. RTGS, called PRISM (Pakistan Real-time Interbank Settlement Mechanism), was launched on July 1, 2008, and since then has been successfully providing online real-time settlement services to 42 participating institutions. All Commercial banks in Pakistan, four DFIs (Development Finance Institutions), and one MFB (Microfinance Bank) are direct members of this System For smooth and efficient working of RTGS, SBP has

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issued comprehensive ‘Operating Rules’ for PRISM operations, prepared after extensive deliberations with stakeholders both internal and external. Moreover, a facility for settlement through PRISM System has also been extended to NCCPL (National Clearing Company Pakistan Ltd) via participating banks. NCCPL is responsible for clearing of shares traded in all stock exchanges of Pakistan.

2. e-Banking and its CompositionIn terms of volume, e-banking has recorded 196.3 million transactions showing 22.9 Percent increase against an increase of 28.4 percent over the previous year. The totalValue of transactions was Rs 17.3 trillion showing an increase of 20.6 percent against3.5 percent increase last year

ATM is one of the most widely used and preferred ADC in the country. ATMs areCommonly used for comparatively small value cash withdrawals; therefore its shareIn total number of electronic transactions has been recorded to be the highest, i.e., 59 Percent. During FY10, the average value of ATM transactions3 was Rs 7,826 comparedTo Rs 7,336 last year. Share of Real Time Online Banking (RTOB) and Point of Sale(POS) in e-Banking transactions was 31 percent and 8 percent respectively. Other e-Banking Channels such as Call Centre, Internet and Mobile Banking, however, hadComparatively low share in total E-Banking transactions.In terms of value, RTOB contribution was 93.5 percent as this channel is used mostly for business to business (B2B) transactions. ATM contributed 5 percent in the value of transactions. The shares of POS, Internet, Mobile banking, and Call Center banking were, however, nominal in total value of e-Banking transactions

3. Real Time Online Branch (RTOB)

I- Network and Automated Teller Machines (ATMs)During FY10, banks have increased their online branch network from 6,040 to 6,671Showing a growth of 10 percent compared to 14 percent growth in the previous year.The share of online branches in the total branch network has increased from 68 percent to 73 percent. Similarly, during FY 10, banks have added 466 new ATMs in their network, bringing the total number of ATMs in the country to 4,465, reflecting a growth of 11.7 percent compared to 28.1 percent growth last year.

II- Number of Cards (Credit/Debit/ATM)As of June 30, 2010, total number of cards in circulation has reached 10.5 million asAgainst 8.9 million last year showing a growth of 18 percent.

III- Real Time Online Banking (RTOB) TransactionsDuring FY10, in terms of volume, RTOB transactions increased by 28.2 percentCompared to 28.3 percent last year. In terms of value, the amount increased by 19.7 Percent compared to 1.7 percent last year.Banks offer RTOB channel for conducting various C2C, C2B and B2B transactions online.

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IV- Transactions through ATMsDuring FY10, in terms of volume, ATM transactions registered an increase of 27 percentCompared to 34 percent last year. In terms of value, the amount of ATM transactions increased by 35 percent compared to 48 percent increase in the previous year. Apart from cash withdrawal, ATMs are also used for inter-bank funds transfers, cash deposits, payment of utility bills, etc. In Pakistan, on average, daily 71 transactions were executed per ATM during the year.

V- POS (Point of Sale) TransactionsAs of June 30, 2010, total number of POS terminals had reached 52,049 compared to 49,71 5 last year showing an increase of 5 percent. In terms of volume, POS transactions in the country reached 15.7 million showing a decrease of 14.3 percent compared to 4.5 percent increase recorded in the previous year. In terms of value, the amount of transactions reached Rs 75.4 billion showing a decrease of 15.8 percent compared to 30 percent increase recorded last year. Strict policy measures taken by banks regarding issuing credit cards are believed to be the main reason behind this decline

VI- Call Centre BankingTransactions through call centers or IVR during FY10 were 1 million involving an amount of Rs 7.1 billion. This shows an increase by 8 percent in volume, but 16 percent decrease in value compared to 13 percent increase in volume and 15 percent decrease in value last year.

VII- Internet BankingInternet banking includes payments and electronic fund transfers (EFT). During FY10, banks reported 2.96 million transactions involving an amount of Rs141.2 billion, which shows an increase of 41 percent in volume and 107 percent increase in value compared to an increase of 59 percent in volume and an increase of 56 percent in value recorded last year.Some banks in the country are offering financial transactions through mobile phone. The volume of transactions was 371,052 for FY10 compared to 71,240 transactions recorded last year. In terms of value, it reached Rs 1.89 billion compared to Rs 16 million last year

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Conclusion

Every authority concerned with Co-operative sector will have to play its part in ensuring that the aspirations of the Urban and rural Co-operative Banking sector are nurtured in a manner that depositor interest and the public interest at large are protected. The role of SBP could, thus, be to frame a regulatory and supervisory regime that is multi-layered to capture the heterogeneity of the sector and implement policies that would provide adequate elbowroom for the sector to grow in a non-disruptive manner. The State and Central Governments could recognize that the SBP are not just co-operative societies but they are essentially banking entities whose management structure is that of a co-operative. They should recognize the systemic impact that inefficient functioning of the entities in the banking sector could have. Consequently, it would be in the interest of the sector if they support, facilitate and empower the Commercial banks to put in place mechanisms and systems that would enable these SBP to perform their banking functions in a manner that is in the overall interest of the depositor and the public at large.

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